Dairy prices hold; IMF trims world growth guess; China slows; Germans less optimistic; Oil jump; UST 10yr yield 2.05%; oil and gold unchanged; NZ$1 = 64.9 US¢, TWI-5 = 70.6

Dairy prices hold; IMF trims world growth guess; China slows; Germans less optimistic; Oil jump; UST 10yr yield 2.05%; oil and gold unchanged; NZ$1 = 64.9 US¢, TWI-5 = 70.6

Here's my summary of the key events overnight that affect New Zealand, with news some market anxiety has lifted today.

Locally, the dairy auction results were not as negative as many had feared. Overall, prices were down just -1.4% and WMP prices were virtually unchanged. There is a fair amount of relief in these results, especially as the NZ dollar has fallen more than enough to counter these tiny declines.

Globally, the fear that gripped markets at the end of last week eased today and most markets are a lot calmer, supported by attitudes of investors on Wall Street after their long weekend.

However, the IMF cut its global growth forecasts for the third time in less than a year overnight, at the same time as Q4 GDP data from Beijing showed that the 2015 Chinese economy grew at its slowest rate since 1990.

The Chinese data showed industrial output grew just +5.9% with crude steel production actually shrinking -2.3% year-on-year, while retail consumer spending grew +11.1%. Their pivot to the service sector is in full swing.

Most of the Chinese data was reassuring because there was a sense beforehand things could have been a lot worse in the December quarter. However, the usual sceptics were also out in force. You might say there is 'something for everyone' in this Chinese data release.

The IMF's data has world growth rising from +3.1% in 2015 to +3.4% in 2016 and a tick higher the following year. The forecast reduction is all about a trim for the US for which it now sees +2.6% growth. China it sees growing +6.3% in 2016, India +7.5%, both unchanged assessments. Neither Australia nor New Zealand figure in these latest forecasts.

That slower US growth will clash with the recent new-found bipartisan agreements on the US Federal budget. Spending and deficits are on the rise, forecast to go from -2.5% of US GDP to -2.9%.

The Germans also see subdued growth.

The Chinese are preparing for their week-long New Year festival early this year. The central bank is promising a US$100 bln liquidity boost over the period - in what may be cover for some backdoor stimulus.

In New York, the benchmark UST 10yr yield is essentially unchanged today at 2.05%.

The oil price is holding at US$29/barrel on both benchmarks today. Warmer weather patterns and rising supply will keep the crude oil market oversupplied until at least late 2016, the International Energy Agency said in its monthly report overnight.

The gold price has slipped slightly, and is now at US$1,088/oz today.

The Kiwi dollar has found its feet and risen albeit not by a lot, but it is higher against most pairs this morning. It starts at 64.9 US¢ today, at 93.7 AU¢, and at 59.5 euro cents. The TWI-5 is now at 70.6.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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17 Comments

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No news about Pengxin breaching it's debt covenant with ANZ ? Lost 7.6 mill owes 94.8 mil.

You can get their Annual Report (June 2015) that report is based on, here.

its a good thing that silly bill about foreign companies not have to post their results for everyone to see was quashed

Wondrous - who's kidding who

And so the cry goes out - we need foreign investment money to develop the country - yet here is a foreign investor buying up a local asset using locally borrowed money

Genius

But wasn't it ever thus?

BOE claims - "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits" … "In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money 'multiplied up' into more loans and deposits."

And yet Bernanke still claims otherwise in his blinkered closed circle world of US Federal Reserve banking.

Bernanke argued that the global economy was more troubled by a global savings glut, which had long been a drag on investments. Read more

The Chinese data showed industrial output grew just +5.9% with crude steel production actually shrinking -2.3% year-on-year, while retail consumer spending grew +11.1%. Their pivot to the service sector is in full swing.

Hmmmm.

Retail sales in December 2015 were less than the worst of the Great Recession. After averaging 18.4% in 2010, Chinese retail sales averaged 17.1% in 2011 and then 14.2% in 2012. In other words, Chinese consumers are not diverging from China’s industrial track, they are all moving in the same direction if not exactly at the same time. Worse, for those who think China is transitioning to a consumer economy, industrial production clearly leads retail sales in this systemic baseline – both up and down. Even in the Great Recession itself, IP began collapsing in July 2008 while retail sales would not similarly adjust until that November (with the same lag in the recovery where IP started up months before retail and consumers). Read more

Mon: China confidence turns to fear.
Tue: CDS spreads rise sharply.
Wed: Anxiety lifts.
Everything is awesome again, IMF and China data sayd so.

Total quantities sold for all products at the January 19th event of 25,671 MT were 14.6% less than the previous auction and the lowest amount of product sold since Mar ’15.
Volumes also remained lower on a seasonal basis as total quantities sold for all products within the January auctions were 26.8% below last year’s average volumes sold for the month of January and 40.0% below the previous three year average January quantities sold.
https://secure.attenbabler.com/wordpress/wp-content/uploads/2016/01/Mont...

Yes. Fonterra is offering less and less on the auction platform, selling more and more directly to customers. In fact, Fonterra's production is shifting away from the types of commodities offered on the platform. 

As separately reported, Fonterra exported record volumes in December.

The auction platform however still performs the useful function of establishing prices in a transparent way.

David, when reporting NZ $ milk returns adjusted by the NZ $ rate - you are assuming they are unhedged which would not appear to be the case looking at their previous balance sheets.

Would be interesting to see what they are bringing $'s back at from time to time net of hedged positions.

“An increased portion of product is being sold through bilateral customer agreements for a premium on prices achieved on GDT.

Given that customers are not price indifferent, what proportion, off what base, for which products? Read more

except the pic is of a container ship....

"to 369 - its lowest level since records began in 1985" approaching roughly a 1/3rd of the rate its been for a few years...

"The Germans also see subdued growth" ... the euphemism of the day. Germans are seeing the wanton destruction of their post-war society by a psychopathic government which is destablizing the entire Continent. This will have significant repercussions for the world economy. Should one report on details like that or does it hurt the politically correct feelings of aging boomers too much?

AEP in typical "après moi le deluge" mode in Torygraph here: http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-fa...

The money shot:

It was always dangerous to rely on central banks to sort out a solvency problem when all they can do is tackle liquidity problems. It is a recipe for disorder, and now we are hitting the limit.

Hang on ter yer hats (and pension funds and investments and .......)

World faces wave of epic debt defaults, fears central bank veteran
Exclusive: Situation worse than it was in 2007, says chairman of the OECD's review committee

European banks have already admitted to $1 trillion of non-performing loans

http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-fa...